<You raised concerns about "inflated" real estate prices. However, by claiming this, you seem to imply that you, or some other particular entity, possess a standard by which all assets should be valued. Exactly how should value be assessed, and what standard will you use?>
As I have stated before I believe cetain parts of the U.S. economy are in a speculative bubble which hopefully has just been pricked. This is just my opinion... what I said before was that AG leads me to believe that he also thinks this and that he is taking this into account in his policy decisions. You'll have to ask him what model he has used to come to his conclusion. I assume that he sees the obvious [rampant speculation and leverage in many parts of the economy] and believes that he must reign in the money supply which has exploded... but you'll have to ask him.
<Now for the Fed to target an actual asset's price, whether it be real estate or stocks, they are restricting the market's right to freely value what the actual price of such assets should be and what they are willing to pay for it. .
Are they targeting "an actual asstet"? An asset class? Or assets in general? I never heard of the fed restricting the markets right to value anything. I think you're 'over the top' here. What I have heard the fed say [my interpretation] was that the 'asset inflation' we have seen is a sign that money is too easy in general, and that it's time to tighten.
Now, as you are probaly aware there is a contingent out there [not just on this thread] who think AG has been too easy for years and he created a bubble. I'm not so sure that in this dynamic world things are so easy, I think a lot of what you're saying about the U.S. being the place to invest on the planet is indeed responsible for the bubble and that there may be little AG could do or have done... I don't know for sure, although the explosion in MS and bank credit would have had bells ringing in my head long ago as my government ends up holding the bag on much if it goes sour.
Just as an aside, the government will also end up 'paying' if the public at large pisses away their retirement funds on lotto tickets... errr shares in .com compananies. I'm sure this is in the back of AG's mind as well, IMO if the bubble gets ever bigger it is conceivable that you end up with folks 'losing it all' that can't afford to do so. I'm not saying I agree with the philosophy that the government should pay for these fools retirement if they squander their nesteggs.... but unfortunately I know THAT THEY WILL! And therefore it is in my interest that it doesn't happen.
<For the Fed to determine what people are willing to pay for an asset is wrong. However, for them to decide how much then lending community will participate in such purchases is correct. However, instead of blanket hikes in the prime rate, they should impose greater reserve requirements on banks and greater collateral requirements on borrowers. >
I think the fed is thinking the way you are... they are just using asset prices as a barometer. I agree that margin and reserve requirements could be raised, don't know why they don't.
<Hiking interest rates month after month creates artificial and uneccesary distortion in both the economy and the price of assets for those of use who are playing by the rules>
However, I disagree that they absolutely shouldn't raise rates...maybe they've done enough already, I don't know, but I doubt it. I believe they've held them artificially low for quite some time which makes people tend to favor stocks over fixed income... fooling people into the market [if true] in effect. It also creates a situation where more investment opportunities 'look' like they make sense to the entrepenuer because of these artifically low borrowing costs.
DAK |
